Commodity wrap - Cotton, Cocoa, Gold, Soybean

Cotton:

• Cotton prices plunged following the latest WASDE release
• Production expectations in the US have increased of late due to better weather conditions there
• WASDE release showed higher than expected output and ending stocks
• A trade dispute between the US and China plays a role in the cotton market as well as the US is a large producer of this commodity whereas China is a significant buyer
• Cotton prices have reacted to the level of 65c per bushel

The latest WASDE report was not positive for cotton prices. Source: BloombergA number of longs has lowered recently to the neutral level. On the other hand, a number of shorts increased prior to the WASDE release (it reached almost a 3-year high, however, it stayed well below its extreme levels). Source: BloombergCotton prices reacted to 65c as well as the 23.6% retracement of the latest big bearish. Source: xStation5

Cocoa:

• Cocoa regulator along with Ivory Coast point to a lower level of cocoa production in the season starting in October (1.6 million tone vs. 1.67 million tone)
• Ivory Coast sold 1.2 million tons of cocoa via futures contracts
• A huge sales number of the upcoming season puts a limit on further price rises in case of production disruptions
• Cocoa stocks in the US are exceptionally low compared to the 5Y average, a seasonal peak in US stocks is getting closer
• Cocoa has been in demand in London, in USD terms cocoa prices in London is $100 higher than in the USCocoa stocks in the US are exceptionally low compared to the 5Y average. Source: BloombergA number of longs in the US market is relatively low, whereas a number of shorts are well below the extreme levels. Source: BloombergSpeculative positioning in London is very high. This was why cocoa prices increased there. Source: Bloomberg​​​​​​​

Gold:

• Gold prices have increased in response to falls seen on Wall Street
• Bitcoin has benefited (more than gold) from increased uncertainty in the market because it may offer a better way of capital allocation
• Net positioning in the gold market has begun rising
• ETFs have begun cumulating gold holdings
• Risk reversals in the gold market have rebounded notablyRisk reversals in the gold market have risen to the levels last seen in late March. Source: Bloomberg

Soybean:

• Soybean prices feel the pain after China announced retaliatory tariffs
• Rumours suggest that China may stop purchasing US commodities, including soybean and oil
• US farmers expected significant subsidies from the US government due to trade war
• Outbreak of ASF disease in China additionally lowers demand for soybean
• Stock of hogs in China was significantly limited at the turn of 2018 and 2019
• According to the University of Illinois, decrease of 5-7% in the hog stock may destruct demand for soybeans in spite of whether trade war is resolved or not
• There is a risk that the disease may spread to the other Asian countries
• Any potential rebound may be short-lived
• Soybean price bounced off the demand zone in response to the crop planting data. Only 5% of planned acreage has been sown already while markets expected progress to reach 15%Disastrous plantings data for most grains. WASDE report showed significantly higher than expected corn production and slightly lower soybean production. Source: BloombergUse of soybean has dropped significantly in comparison to the previous season. Source: USDAMajor decrease in the hog stock. Source: University of Illinois

  Soybean price recouped losses after touching the 161.8% Fibo level of the latest upward wave. Key support can be found at the 778 cents per bushel handle. Source: xStation5